If the US media delights in its every day interactions with Donald Trump, who not only refuses to follow the conventional playbook, but has torn it apart and burned it for good measure, it would have an absolute field day with the Philippine president-elect Rodrigo Duterte.
The reason is that earlier today, Duterte who takes over the local presidency on June 30, said that corrupt journalists were legitimate targets of assassination and should be killed, as he amped up his controversial anti-crime crusade with offers of rewards for killing drug traffickers.
As AFP reminds us, Duterte won this month’s elections by a landslide largely due to an explosive law-and-order platform in which he pledged to end crime within six months by killing tens of thousands of suspected criminals.
It’s not just corrupt journalists that are the target of Duterte’s wrath: the “foul-mouthed politician” has launched a series of post-election tirades against criminals and repeated his vows to kill them – particularly drug traffickers, rapists and murderers.
In a press conference called on Tuesday to announce his cabinet in his southern hometown of Davao, Duterte said journalists who took bribes or engaged in other corrupt activities also deserved to die.
“Just because you’re a journalist you are not exempted from assassination, if you’re a son of a bitch,” Duterte said when asked how he would address the problem of media killings in the Philippines after a reporter was shot dead in Manila last week.
Something tells us Trump would empathize; although there are mitigating factors. As AFP notes, the Philippines is one of the most dangerous nations in the world for journalists, with 174 murdered since a chaotic and corruption-plagued democracy replaced the dictatorship of Ferdinand Marcos three decades ago.
On the other hand, Duterte’s blunt solution has an eerie sense of vigilante justice: “Most of those killed, to be frank, have done something. You won’t be killed if you don’t do anything wrong,” Duterte said, adding that many journalists in the Philippines were corrupt.
Duterte also said freedom of expression provisions in the constitution did not necessarily protect a person from violent repercussions for defamation. “That can’t be just freedom of speech. The constitution can no longer help you if you disrespect a person,” he said.
Duterte raised the case of Jun Pala, a journalist and politician who was murdered in Davao in 2003. Gunmen on a motorcycle shot dead Pala, who was a vocal critic of Duterte. His murder has never been solved.
“If you are an upright journalist, nothing will happen to you,” said Duterte, who has ruled Davao as mayor for most of the past two decades and is accused of links to vigilante death squads. “The example here is Pala. I do not want to diminish his memory but he was a rotten son of a bitch. He deserved it.“
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What jumps out here is the question of just what the president-elect believes makes a journalist “non-upright”: considering the country’s history with journalistic violence and murders and regressive retaliation, one would assume that something as innocent as writing an investigative piece exposing the corruption of the existing government, or perhaps even the president, would be sufficient grounds for putting said journalist on the “assassinate” list.
One of the world’s deadliest attacks against journalists took place in the Philippines in 2009, when 32 journalists were among 58 people killed by a warlord clan intent on stopping a rival’s election challenge. More than 100 people are on trial for the massacre, including many members of the Ampatuan family accused of orchestrating it.
Duterte has named Salvador Panelo, the former defense lawyer for the Ampatuans, as his presidential spokesman, a nomination criticized by the victims’ families and journalists’ organizations.
The president-elect also hopes to crack down in dramatic fashion on country’s big drug problem.
Duterte, who will assume office in one month, also said he would offer bounties to law enforcement officers who killed drug traffickers. He said three million pesos ($21,000) would be paid to law enforcers for killing drug lords, with lesser amounts for lower-ranking people in drug syndicates.
Outlining some of his other plans for his war on crime, Duterte said he would give police special forces shoot-to-kill orders and send them into the main jail in Manila where prisoners run drug trafficking operations.
So… a country full of Judge Dredds who have virtually unchecked power over whom to kill. Surely, what can go wrong.
Finally, Duterte would also root out corruption in the police by largely the same means: he would enlist junior soldiers to kill corrupt top-ranking police officers who were involved in the drug trade.
“I will call the private from the army and say: ‘Shoot him’,” Duterte said.
Finally, in a line that would lead to unprecedented media ratings if it was uttered by Trump, Duterte also urged police not to wait until he assumed the presidency, and start killing criminals immediately. “Now, now,” he urged them.
Police earlier confirmed killing 15 people in a series of drug raids across the country over the past week, which Amnesty International described as a sharp and sudden escalation in the long-standing problem of questionable deaths by Filipino security forces.
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Finally, there was this:
The first ever, self-administered powersharing arrangement with the army in modern history?
To be sure, the new Philippino approach to fixing a crime-ridden society will be different from anything tried before (and perhaps after). It may even work. if so, we wonder how many other somewhat “radical” leaders will adopt Duterte’s approach of enabled vigilantism, whose outcome will be very binary: either the complete eradication of crime, which we find unlikely, or total social de-evolution and rampant, and even more violent crime.
All along Hillary Clinton has pled that when it comes to her violation of Federal regulations, she was at worst naive, hardly malicious and – as of recently – merely doing what each of her state department predecessors has done; and she has been very careful to make it clear that she never purposefully and intentionally “stripped” confidential data in order to send it through her unsecured server as such an act would imply not only a breach of email retention policy, but a willful abuse of confidential documents.
Well, moments ago Wikileaks unveiled what it believes may be the FBI’s “smoking gun” in its case against Hillary. In a tweet, Wikileaks highlights one specific email and asks “Is this email the FBI’s star exhibit against Hillary Clinton (“H”)? “
Just over a month ago, we reported that in addition to Georgie, Arkansas, Michigan and Oklahoma, the largest US health insurer UnitedHealthcare announced it would also depart the following “Affordable” Care Act state exchanges: Connecticut, North Carolina; Nebraska, Pennsylvania and Texas. That, however, was just a preview of what’s to come, because on April 19, UnitedHealthcare made its divorce with Obamacare complete when it announced plans to exit most of the Affordable Care Act state exchanges where it currently operates by 2017. And earlier today, United continued executing on this warning, when it first announced that it would stop offering Affordable Care Act plans in Illinois in 2017 followed promptly by news UnitedHealthcare was abandoning California at the end of the year as well.
As PBS reports, while United announced in April it was dropping out of all but a handful of 34 health insurance marketplaces it participated in, the company had not discussed its plans in California. UnitedHealth’s pullout also affects individual policies sold outside the Covered California exchange, which will remain in effect until the end of December.
“United is pulling out of California’s individual market including Covered California in 2017,” said Amy Palmer, a spokeswoman for the state exchange.
It’s expected that UnitedHealth will continue offering coverage to employers in California and to government workers and their families through the California Public Employees’ Retirement System.
Amy Palmer, a spokeswoman for the state exchange said UnitedHealthcare policyholders will know their options for 2017 coverage when health plans and rates for next year are announced in July. It is safe to say any “options” will not be cheap.
Concurrently, the company also announced it will stop offering Affordable Care Act plans in Illinois in 2017. According to the Tribune, the departure of the insurance company will reduce the number of coverage options for consumers in 27 counties. Like in California, Illinois members will have access to their benefits through the end of the year. The change does not affect the company’s group insurance business or Medicare plans.
Furthermore, on Tuesday, UnitedHealthcare disclosed on a website dedicated to insurance brokers that it plans to offer on-exchange plans in only three states — Nevada, New York and Virginia. A company spokeswoman confirmed that it will withdraw from the Illinois exchange.
Critics of the Affordable Care Act have seized on the company’s exit, state by state, as further evidence the health-law insurance exchanges aren’t sustainable financially and that premiums will rise even higher for consumers.
The Obama administration has countered that the number of health plans offering exchange policies has increased since the 2014 launch, and that it expects the individual market will continue to stabilize as adjustments are made.
Unfortunately, as we showed recently, the critics so far have been spot on, and as the WSJ reported recently, health insurance premiums are set to skyrocket just in time for the election, creating a major hurdle for Hillary days ahead of the election.
Since May 2012, China Manufacturing PMI has miraculously stayed within a 1 point range of the knife-edge 50 level between contraction and expansion. May 2015 just printed 50.1, the same as April with New Orders weaker and business activity expectations (hope) tumbling to 4 month lows. The Steel Industry PMI collapsed from 57.3 to 50.9 with New Steel Orders collapsing from 65.6 to 52.7 – the biggest monthly drop in record. And while non-manufacturing PMI remained in ‘expansion territory at 53.1, it fell back from a brief bounce in April with employment and business expectations both weaker. For now, equity markets are unreactive but offshore Yuan is tumbling on the news, not helped by a sizable devaluation in the official fix.
The magic of manufacturing data… as non-manufacturing slowly catches down…
Disappointment triggering more offshore Yuan selling…
Not helped by yet another devaluation by PBOC…
*CHINA SETS YUAN FIXING AT 6.5889 VS 6.5790 DAY EARLIER
*PBOC CUTS YUAN FIXING TO LOWEST LEVEL SINCE 2011 FOR THIRD DAY
The most widely-reported result of the recent G-7 meeting was Japan’s attempt to convince the other major economies to admit that a crisis is imminent and take appropriately radical steps. The response seems to have been a bunch of blank stares. As India’s Business Standard noted:
A Group of Seven compromise offers minimal cover for Shinzo Abe. The Japanese prime minister’s plan to revitalize the world’s third-largest economy needs fresh impetus. Abe didn’t get as much international backing as he might have liked from hosting the rich nations’ club. But, the summit communique can, just about, be spun his way.
Abe’s counterparts, understandably, do not share his view that the world risks another Lehman Brothers-style financial crisis. That is important because Abe has inexplicably committed to raising the country’s sales tax next April, a surefire way to choke off recovery – unless a shock of this scale emerges.
So Japan — which, remember, has already borrowed eye-popping amounts of money, increased its central bank balance sheet by more as a percent of GDP than have either the Fed or ECB, and pushed interest rates on most of its government bonds into negative territory, all to no avail — has decided to act on its (manifestly justified) sense of panic by starting a new round of deficit spending:
(Bloomberg) – Japan Prime Minister Shinzo Abe plans to propose a fiscal stimulus package of as much as 10 trillion yen ($90.7 billion) after warning Group of Seven leaders that the global economy faces significant risk of another crisis, according to the Nikkei newspaper.
Abe will seek a second supplementary budget worth 5 trillion yen to 10 trillion yen after July’s upper-house election, the Nikkei reported Saturday without attribution. Proposals will include accelerating the construction of a magnetic-levitation train line from Nagoya to Osaka, issuing vouchers to boost consumer spending, increasing pay for child-care workers and setting up a scholarship fund, the Nikkei said.
“When you want to get the economy going, as long as demand in Asia is weak, you need additional public spending,” Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, said by phone. “Since private spending is still not picking up, the government is simply taking up the slack.”
The stimulus package would be the second this fiscal year after Japan approved a 778 billion yen supplementary budget this month to aid recovery from earthquakes in the Kumamoto region.
(Reuters) – Japanese Prime Minister Shinzo Abe will postpone a sales tax hike planned for next year, perhaps by as much as three years, government sources say, a move he will justify as part of G7 efforts to avert another global financial crisis.
While the tax hike was seen as critical to reining in Japan’s massive public debt, Abe and his aides have signalled the chance of deferring it as Japan’s economy skirts recession and a threat of deflation re-emerges ahead of summer upper house elections.
“We’ve reached a global agreement to cooperate to avoid another big crisis from erupting … As G7 chair, Japan will spearhead such moves to contribute to the global economy using all policy tools available,” Abe told reporters after the Group of Seven (G7) leaders’ summit in western Japan on Friday.
“We must reignite powerfully the engine of Abenomics. That undoubtedly would include a decision on what to do with the sales tax hike,” he said, offering his strongest hint yet that next year’s tax hike will be delayed.
What does this mean? In a nutshell, the next phase of the global economic crisis has begun. First, governments responded to the 2000 tech stock crash with lower interest rates and big deficits. Then they responded to the housing/banking/derivatives bust of 2008 with even lower interest rates, bigger deficits and experiments like QE. Then they responded to the resulting anemic recovery with negative interest rates and more QE.
None of the above has produced the kind of growth in the US, Europe or Japan that slows the upward march of debt/GDP, which means everyone is still digging their own financial graves. Since this is not an acceptable long-term strategy (eventually the sides of the hole cave in and bury you), something else has to be tried by the people who hope for re-election a few years hence. So now we’re back to massive deficits, but with a negative interest rate twist. Think about it: When a government issues negative-rate debt, it earns a profit on the transaction. And when it sells its debt to its own central bank it in effect owes the money to itself. A site called Forex Live just published an interesting analysis of this unprecedented situation:
If you can print your own money, you can issue unlimited amounts. The only risks are inflation and a decline in the currency.
It just so happens that inflation and a decline in the currency are exactly what many governments want.
In the developed world, inflation is non-existent and the currency war rages. The trump card in that game is default via monetization and it’s coming.
The dominant ethos of the past 25 years has been a drive towards fiscal discipline. Politicians and political commentators have built their reputations and careers as misers. There is something inherently, almost pathologically wrong about defaulting.
That will all change.
The idea of default sounds like it would create panic; if not in the streets then in markets. But it’s easier than you might assume and it will happen sooner than you think.
The hard part is already done. It’s simply a matter of taking the debt the central bank already owns and writing it off. To ease the shock value of it, the debt will simply be converted into bonds the central bank will continue to ‘own’ but will have 0% coupons and no maturity.
Japan will be the first to do it
Japan is a demographic nightmare and has been unable to stir inflation for the past 20 years despite zeroed out rates. The debt-to-GDP ratio is a mind-blowing 227.9% with a fresh stimulus budget coming. There is no way out.
At the moment, the BOJ owns 35% of Japan’s government debt and at the current pace of buying it will hit 63.3% at the end of 2020. With the stroke of a pen, all that could disappear.
I don’t even think it would be disruptive. The central bank could launch a new round of QE at the same time as the announcement and keep control of what’s left of the bond market. At the moment, Japanese 10-year are yielding -0.11%. The means you have to pay interest to the government just so they’ll give you your money back in 10 years. Almost everyone who owns Japanese bonds is an insurance company or pension fund that has no other choice.
How do markets react
Governments face hard choices but they will find that monetization is far easier than Eurozone-style austerity (how many governments won re-election after that?) or stalled out growth.
Certainly in the first episode there will be some worries in markets. Gold will undoubtedly rally and the currency will decline. It may even create some inflation.
But like QE, the first forays will be small and governments will quickly fall in love with the ability to spend in ever-larger amounts.
This is disturbing on a lot of levels, but it’s also quite conceivable. When governments figure out that in a world of deflation (caused by the industrial overcapacity and bad debt from their previous policy mistakes) they really can borrow and spend whatever they want — and if it causes inflation, well, great, they win the currency war — then the floodgates will open.
Japan, as it has with past monetary and fiscal insanities, is leading the way. And if history is any guide the rest of us will follow along shortly.
As readers may have noticed, there have been some cosmetic changes to the layout of the website.
First and foremost, we responded to readers’ repeated requests and have finally added a mobile version of the website.
Second, we have revised the desktop version of the site in a move we hope will make the site faster, as well as more resilient to heavy traffic outages.
We have also changed the formatting of the comment section to be able to accommodate more indented comments as well as added a “reply-to” functionality within the comments.
There are ongoing fixes we will implement over the next hours to restore full functionality, as well as improve speed.
Over the next few weeks we will be rolling out further modest changes to streamline the site.
This is a work in progress: as such, we are willing to listen to readers’ constructive suggestions on how to improve the browsing experience.
As we reported last week, a looming Trump presidency has generated a surge in immigrants trying to cross the southern border of the United States.
From October 2015 to March of this year, the US Border Patrol apprehensions averaged 330 Central Americans a day, an increase of 100 percent over the same period a year earlier according to the Pew Research Center. The issue has even prompted Homeland Security Secretary Jeh Johnson to travel to Central America to remind everyone in person that the US border is not open.
"I am here today to send a message that our borders in the United States are not open to irregular migration" Johnson said.
Despite the nice speech from Jeh Johnson, family holding facilities are full on the southern border, and the need for supplies at places such as Catholic Charities of the Rio Grande Valley has skyrocketed.
"It's like 50, 60, 100, 200 backpacks that we need every day; 200, or 50 or 80 deodorants or shoes. Can you imagine coming up with 50, 60, 80 pairs of shoes every day? It's amazing." said Sister Norma Pimentel, director of Catholic Charities of the Rio Grande Valley.
Border Patrol agents are becoming frustrated, and the root cause of the frustration is that there is a catch and release program taking place. The time it is taking for agents to round up and process those who turn themselves in asking for asylum (just to release them into the US) is taking away from capturing the immigrants who aren't looking to turn themselves in to anyone – drug traffickers for example.
Union president Brandon Judd testified at a congressional hearing that if immigrants are arrested and ask for asylum, they're being allowed to get processed and move along on their journey to join family members elsewhere in the US while they await their hearing. The hearing itself could take up to two years, as the courts currently have a backlog of nearly a half a million cases. The reason being given is that the US court rulings restrict the agency's ability to detain those arrested.
"What happens is if you are arrested in the United States and you ask for any sort of asylum, what we do is we will process you, and we will walk you right out our front door, give you a pat on the back and say, 'Welcome to the United States.' And they're good to go," Judd testified at the hearing.
Chris Cabrera, a south Texas Border Patrol agent and union official says all the families surrendering to seek asylum are distracting his member agents, when they should be chasing drug and human traffickers.
"Our agents are so caught up with rounding up the ones that are turning themselves in, corralling them and getting them to the station, that we don't have adequate resources to get the ones that are trying to get away," Cabrera said.
And as it turns out, it's not just a looming Trump presidency that is driving the surge in immigrants to the US, it's an expectation of the immigrants that when they are arrested, they'll be processed and released, free to go in the United States.
Central Americans risk the journey because they know most of them will be admitted at the U.S. border and not locked up, as are immigrants from Mexico who cross illegally.
Wendy Villanueva is from Honduras, traveling with her toddler daughter. The 21-year-old says they fled Colón Province when gangsters extorted her small clothing business and threatened to kill her if she didn't pay up.
Villanueva and her daughter took buses to the Texas-Mexico border and surrendered to U.S. agents on the international bridge at Brownsville. They're headed to North Carolina to join her mother and sisters, who are also seeking amnesty.
"According to our countrymen who are here, and from what they learned, we expect that the authorities will also give us permission to remain here," she says, waiting to collect some new clothes and hygiene items at the shelter for the next leg of her journey north.
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Whatever one's politics are on the issue, as we say time and time again, if the economy isn't performing well, violence will continue and so will the surge of immigrants trying to find safety and a better way of life. It's also worth noting, that no matter how effective a wall may be, if there is a catch and release program taking place it defeats the entire purpose of building a wall in the first place.
Sadly, everyone has seemingly forgotten that the lessons of the past can help prepare us for the future. For example, one would assume that the sting of owning an truck or SUV during the financial crisis would stick with consumers long enough to deter them from falling back into the same trap again just because oil was trading lower… then again, just as assuming market participants would remember that time period, one would be wrong.
So here we are once again. Last year, SUVs outsold any other type of passenger vehicle in Europe for the first time, and the trend has continued into 2016 as Bloomberg reports.
The same is occurring in the US, as today light trucks, vans, and SUVs account for 60 percent of the total vehicle sales, a level only reached briefly in 2005 when Brent averaged $55/bbl – meaning that once again low oil prices have lured consumers back into buying less fuel efficient vehicles.
In April, the average car sold achieved a fuel economy of 25.2 mpg, down from a peak of 25.8 mpg set in August 2014. As Bloomberg notes, at current trends, 2016 will mark the first drop in average US fuel economy since at least 2007.
"Fuel economy improvement is really flatlining. The gains completely stopped right at the same time that oil prices started to decline" said Sam Ori, executive director of Energy Policy Institute at the University of Chicago.
As further evidence that consumers having amnesia, light trucks as a share of total US vehicle sales is also hovering around record highs since 1976
China is not immune to this of course, as according to official data, vehicles such as light trucks and SUVs accounted for almost 35 percent of Chinese passenger sales in April, up from 10 percent in 2010, and less than 5 percent a decade ago.
"Consumers are thinking that a period of plentiful oil supply is here to stay" says Christof Ruhl, head of research at the Abu Dhabi Investment Authority.
US demand for fuel peaks between the Memorial Day holiday in late May and Labor Day in early September when Americans usually take vacations, so given the trend of consumers going to bigger, less fuel efficient cars, it's easy to determine that demand will perhaps help oil prices rise during that time. However, a lot depends on the global economy and the supply side of things, neither of which look to be helpful at the moment, as US and China manufacturing PMIs are slumping and Saudi Arabia plans to boost production even more.
All we can say to this is that just as with the last financial crisis, cheap oil is there until its not, and vehicle manufacturers have demand for all of those trucks and SUVs until another crisis hits and they find themselves back in need of a bailout for over committing to those product lines.
As for the markets, well, we know how that ends as well.
Which reminds us of Rudyard Kipling's poem "The Gods Of The Copybook Headings", specifically this portion:
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew And the hearts of the meanest were humbled and began to believe it was true That All is not Gold that Glitters, and Two and Two make Four And the Gods of the Copybook Headings limped up to explain it once more.
As it will be in the future, it was at the birth of Man There are only four things certain since Social Progress began. That the Dog returns to his Vomit and the Sow returns to her Mire, And the burnt Fool's bandaged finger goes wabbling back to the Fire;
As reported earlier, over the weekend Weekly Standard editor and prominent neocon, Bill Kristol, one of Trump’s most vocal detractors, announced that he would challenge Trump’s presidential candidacy by unveiling an independent candidate, “asn impressive one, with a strong team and a real chance.” This led to another heated exchange between Trump and Kristol, with Trump calling the conservative voice a “loser” and a “dummy”
If dummy Bill Kristol actually does get a spoiler to run as an Independent, say good bye to the Supreme Court!
This is turn led to another response by Kristol who said on Twitter that “I gather Donald Trump said I’m a loser”, adding that “I’ve won some and I’ve lost some, but one thing I’ve always tried not to be is a roaring jackass.”
I gather Donald Trump said I’m a loser. I’ve won some and I’ve lost some, but one thing I’ve always tried not to be is a roaring jackass.
The feud between the Trump and Kristol aside, the political world has been engaged in a fevered guessing game over whom that person might be.
Shortly after Kristol’s Sunday tweet, he left for Israel and has been avoiding the press, speaking only through a series of tweets taunting Trump for responding to Kristol’s Sunday tweet. Speculation had centered on 2012 Republican nominee Romney, freshman Nebraska senator Ben Sasse, and other current and former state and federal office-holders.
The answer was revealed by Bloomberg late this afternoon, which reported that according to two Republicans intimately familiar with Bill Kristol’s efforts to recruit an independent presidential candidate to challenge Donald Trump that the person Kristol has in mind is David French – whose name the editor of the Weekly Standard floated in the current issue of the magazine.
Who is David French? Bloomberg has the details?
French is a veteran of Operation Iraqi Freedom. According to the website of National Review, where French is a staff writer, he is a constitutional lawyer, a recipient of the Bronze Star, and an author of several books who lives in Columbia, Tenn., with his wife Nancy and three children.
Reached in Israel late Tuesday afternoon, Kristol declined to comment on his efforts to induce French to run. The two Republicans confirmed that French is open to launching a bid, but that he has not made a final decision. One of the Republicans added that French has not lined up a vice-presidential running mate or significant financial support. However, according to this person, some conservative donors look favorably on the prospect of French entering the fray.
In Kristol’s piece in the Standard’s June 6 issue, he argued that “the fact of Trump’s and Clinton’s unfitness for the Oval Office has become so self-evident that it’s no longer clear one needs a famous figure to provide an alternative.” Bloomberg adds that after mentioning Mitt Romney and other possibilities such as Judd Gregg and Mel Martinez, Kristol invoked French’s name and résumé, writing, “To say that he would be a better and a more responsible president than Hillary Clinton or Donald Trump is to state a truth that would become self-evident as more Americans got to know him.”
Bloomberg concludes that according to one person deeply involved in the efforts to recruit an independent challenger, the search has focused on individuals who have one or more of the following three traits seen as vital for credibly launching such a bid: fame, vast wealth, and elective experience.
We fail to see precisely which of the three traits French possesses. And now we await the imminent response from Trump.
The world is drowning in steel – there is huge overcapacity in steel production worldwide. This is a direct result of the massive global credit expansion that has taken place over the past 15 years. Much of this capacity is located in China, but while the times were good, iron ore and steel production (and associated lines of production) was expanded everywhere else in the world as well.
Steel factory
Heavy industries like steel, which represent quite a high stage of the production structure, i.e. are temporally far removed from the consumption stage, are especially prone to falling prey to boom-bust cycles. In a fiat money system run by central planning agencies and supplemented by a fractionally reserved banking system, the amplitude of business cycles will be especially pronounced (readers may have noticed that systemic crises have become increasingly severe with every new iteration).
Experience shows that there exists a trade-off between frequency and amplitude: constant central bank intervention has lowered the frequency of economic downturns, but has it has made the crises much worse when they do strike, as imbalances have more time to accumulate.
Moreover, the economy’s long term wealth creation capacity is slowly but surely fatally undermined, as more and more capital is consumed. This is evidenced by the fact that economic growth is increasingly giving way to stagnation nearly everywhere in the world.
Steel rebar futures prices in Shanghai, monthly – click to enlarge.
It is easy to see that the steel industry has been one of the focal points of the last cycle – all we need to do is look at the price history of steel. The longest continuous chart of steel rebar futures we could find is the one shown above, so we are supplementing it with a longer term line chart that shows steel prices from 2003 to 2014. As can be seen, current prices are well below the level they inhabited in 2003. In short, the entire price rise of the “bubble period” has been erased.
Steel prices from 2003 to 2014 – the red line on the right hand side indicates current price levels – click to enlarge.
The Return of “Just Prices”
As a result of all this, the steel industry (along with many other commodity industries) is facing a painful time of liquidation and reorganization. On the other hand, lower steel prices are obviously benefiting all steel users, such as the car industry and the construction industry, to name two important ones. Consumers obviously stand to benefit greatly from this as well, as the latter industries will have more scope to lower the prices of their products.
It seems glaringly obvious that in Western countries, the industries benefiting from low steel prices are far larger and far more important than the steel industry. And it should go without saying that anything that benefits consumers should be enthusiastically welcomed. In fact, the benefit to consumers should be the only standard by which such situations should be judged.
Moreover, lower steel prices are an important signal to the marketplace – they tell entrepreneurs that investments need to be shifted. There is no point in tying up factors of production in steel factories – it will be far better if they are deployed elsewhere.
All of this makes it utterly absurd that the EU, the US and China have begun slapping each other with massive tariffs on steel imports over the past several months (here are links to articles giving some color on the moves made by the EU and the retaliatory moves made by China). The latest event in this comedy of economic error is a massive increase of tariffs introduced by the US commerce department that involves not only China, but several more countries:
“The U.S. Department of Commerce (“DOC”) has made its final decision on anti-dumping investigations on imports of corrosion-resistant steel and concluded that China, India, Italy, South Korea and Taiwan are selling these products in the U.S. market below their fair values and therefore, are subject to anti-dumping duties.The ruling marks yet another major step in stemming the torrent of unfairly-traded foreign imports.
[…]
The biggest U.S. steel producers [five of them all in all, ed note], in June 2015, filed anti-dumping and countervailing duty petitions with the U.S. International Trade Commission (USITC) and the DOC against five countries accused for illegally dumping cheap corrosion-resistant steel.
[…]
Imports of corrosion-resistant steel from China, India, Italy, South Korea, and Taiwan were valued at an estimated $500.3 million, $219.6 million, $110 million, $509.1 million, and $534.4 million, respectively, in 2015 (combined value of nearly $1.9 billion). These products are being illegally dumped by foreign steel producers in the American market at unfairly low prices that significantly undercut the prices of U.S. steel makers.
The DOC, on Wednesday, imposed a whopping final anti-dumping duty rate of 209.97% on imports of these products from China. This will hurt Chinese exporters including Yieh Phui (China) Technomaterial Co. Ltd and Jiangyin Zongcheng Steel Co. Ltd. India, Taiwan, South Korea, and Italy received anti-dumping duties in the range of 3.05% to 92.12%.”
(emphasis added)
This article almost sounds like a satire of sorts. First of all, there is apparently a VAST CONSPIRACY between the steel makers in all these countries, hitherto well hidden from the public eye. Thank the Lord that US steelmakers have spotted it in good time! Who knows what evils may have befallen us otherwise!
Alas, the assertion that steel is “dumped below its fair value” requires us to accept the ludicrous idea that a bunch of bureaucrats actually knows what the “fair value” of steel is supposed to be. In Europe, medieval scholars once extensively discussed the notion of a “just price” in the context of religious doctrine – a debate that went on for centuries. They eventually concluded that there is no just price apart from the market price.
It took these several centuries of learned debate to finally get rid of most of Charlemagne’s extensive and absurd price controls. So essentially, today’s bureaucrats are assuming the role once played by kings, popes and their representatives in determining “just” prices. It sounds almost as though more than a thousand years of progress have just gone “poof”.
Karolus Magnus, a.k.a. Charlemagne, who introduced countless price controls and economic regulations at the Council of Nijmegen in AD 806. It took centuries to get rid of the economic decrees he and his successors imposed in the name of church doctrine (the fashionable pretext at the time. Today the pretext is provided by socialist doctrine).
No Fair! The Economics of “Dumping”
Let us briefly consider the economics of so-called “dumping”. From the perspective of consumers, the case seems crystal clear. Imagine for example that you long wanted to buy a new car, but were put off by its high cost. Suddenly, a car dealer near you lowers the price of the car you want by 30%. Are you going to a) buy it or b) complain about his “car dumping” and alarm the local Spanish Inquisition rep… , sorry, commerce department representative?
We can tell you what 99.99% of consumers would do. We can probably agree that if the remaining 0.01% had a second brain, it would feel lonely. We would come to similar conclusions about a car manufacturer complaining about low steel prices. We’d rightly consider him to be a few French fries short of a happy meal.
No-one expects the Spanish Inquisition!
However, those complaining are of course the steelmakers (all five of them!). What are they really complaining about though? As the charts above show, steel prices are currently very low, and steelmakers obviously don’t like that. So they demand that the State artificially raise them, under the pretext that low import prices constitute evidence of “dumping”.
In case you were wondering how the International Trade Commission of the department of commerce determines whether dumping takes place, here is the official definition of “unfair” prices (get out those prayer beads, ye unbelievers, as we familiarize you with official doctrine!):
“Dumping occurs when imported merchandise is sold in, or for export to, the United States at less than the normal value of the merchandise.”
See how easy it is? According to our sources, it was not quite clear whether the “normal value” of steel was last week’s or last year’s price, or the price in Shanghai or in Rome, so darts were thrown at the steel rebar futures chart we showed above (we cannot guarantee that his is how it really happened).
So the governments of the US, the EU and China are acting as enforcement arms of domestic steelmakers to the detriment of everybody else. Does that make any sense whatsoever? What if Chinese steelmakers offered to give us steel for free? Should we refuse to take it? Shouldn’t we rather be happy to get such a generous gift?
Even if allegations that China’s government is subsidizing its steelmakers are true (i.e., to be precise, if it is true that it is subsidizing them more than other governments are subsidizing theirs), it seems to us that the party that would be hurt the most by said dumping activity would be the dumpers themselves. We should happily let them proceed, in fact, they should be encouraged! The dumpers are evidently subsidizing US consumers and helping to raise their living standards. What’s not to like?
Here is something protectionists never talk about: if one makes it more difficult for others to sell their wares, how are they supposed to pay for what one wants to sell to them? If one thinks their arguments through, protectionists seem to believe that it would be best to have no trade at all. When they first came up with their ideas, they must have been thinking of all those immensely rich villages in the world’s most inaccessible mountain regions.
High up in the Nuba Mountains, where the rich guys live!
Coalition of Obsolete Industries
Obviously though, the governments involved in this trade spat are only acting in the best interests of steel workers. Just as they are only acting in the best interests of taxi drivers when regulating Uber out of existence in a city. Why, we should actually consider bringing back VHS video while we’re at it. Someone must have made those tape machines and tapes, and obviously they’re all out of a job as well.
We have remarked on previous occasions that stopping and reversing economic progress seems to be a major function of governments – and as the makers of the video below rightly ask: How are we ever going to have jobs if we don’t stop progress? Naturally, the same applies to free trade.
It’s time to side with the coalition of obsolete industries! Patriotic duty, etc.!
Conclusion
If Western steelmakers are not able to compete with Asian ones at current steel prices, then jacking import prices up by 200% may temporarily help to keep them in business, but they will no longer have an incentive to become more efficient. In the long run, they will simply be set up for an even bigger fall. The may enjoy an advantage for a brief time, but it isn’t going to last.
Since the amount of capital is finite, tying up capital and labor in an inefficient sector of the economy perforce deprives other sectors of these resources. Here one can interweave our example of the consumer who considers whether or not to buy a car, and finds to his delight that it is offered at a 30% discount one day. The money he saves will now be available for other uses.
In other words, not only is our hypothetical consumer’s living standard raised immediately, but the funds he saves will also benefit others. Whether he saves the money or spends it on other consumer goods, more economic opportunity will ensue. The important thing is that it is the consumer making the allocation decision.Ultimately the economy’s production structure is supposed to serve consumers after all – not government bureaucrats and cronies.